The city of Fitchburg's pension system, as well as the systems of Middlesex and Worcester counties, were each given a grade of D on a new ratings website by the Pioneer Institute, a Boston-based research group that says it wants to bring new transparency and accountability to the state's pension systems.

Almost no Massachusetts pension system, run either by county, school district or city, received a grade worth bragging about. Of the 105 systems, only one -- Minuteman Regional School District in Lexington -- received an A. Only 12 got B's, including the city of Leominster.

There was no bell curve, landing most systems at or around a C.

Leominster Mayor Dean Mazzarella: "I'm not going to push it down to another administration or push it down the road on someone else."

"Frankly, I was surprised at how well they scored," said Iliya Atanasov, the Pioneer Institute's senior fellow on finance.

Atanasov is also one of two authors of the report, released last month, calling for consolidating administration of the state's pension systems. Such a move would save an estimated $25 million a year, the institute said.

Each pension system has a five-member board, but staffing levels differ, and the number of employees and beneficiaries in each system vary greatly, according to data compiled by the Pioneer Institute.

Middlesex County, for example, has seven staff members and nearly 14,000 beneficiaries, according to the institute, although the Middlesex system's chairman, Thomas Gibson, said the system has 18 employees and 18,000 beneficiaries.

Advertisement

Plymouth County has 9,200 beneficiaries and eight staff members, according to the report.

Both the new grading system and the report are meant to raise awareness and jump-start discussion about the state's pension systems, Atanasov said.

Massachusetts' situation is not as dire as such California's or Illinois', he said, "but that's no cause of celebration by any stretch of the imagination."

"Our effort was not so much grading, but the goal was to increase transparency and bring to the public's attention that we know very little of what's going on behind the scenes," Atanasov said.

The pension-grading system is the first of its kind, the institute said. Scores were based on how other pension systems have been graded, taking into account funding ratios, rates of returns on investment, and deadlines for erasing long-term liabilities.

Fitchburg and Leominster have their own pension systems. Surrounding towns are part of the Middlesex County Retirement System or the Worcester Regional Retirement System. Both counties have large unfunded liabilities.

Middlesex does not project that its liabilities will be paid off until 2035, and Worcester, not until 2040. Until then, most of each year's costs go not toward that year's expenses but rather toward paying down long-term costs. For Worcester's system, long-term expenses nearly quadruple annual costs.

Targets for paying off the liabilities are also far from a guarantee. In 2010, Middlesex's target was changed from 2028 to 2035. Worcester County's was extended that year from 2028 to 2040.

Fitchburg expects to retire its debt by 2035. Leominster, among the top-rated pension systems in Massachusetts, is ranked so highly in large part because it expects to erase its long-term liability by 2016.

"We're paying forward," Leominster Mayor Dean Mazzarella said. "I'm not going to push it down to another administration or push it down the road on someone else."

Paying down long-term liabilities sooner means lower debt costs and an improved bond rating, and lower annual payments not far in the future will allow the city to finance other projects, Mazzarella said.

Fitchburg is the fifth-lowest ranked pension system in the state by its level of funding. Its pension system is 42 percent funded, down from a high of 67 percent in 2000 and 2001. The city has an unfunded pension liability of $112.4 million and assets set aside so far of $85.7 million. It has 540 retirees and 613 active workers, according to the report.

In an email, Fitchburg Mayor Lisa Wong wrote that "a higher-than-average ratio of retirees to active employees and a disastrous early-retirement plan for 21 employees in the early 2000s are partly to blame for a poor pension system."

Wong's email continued: "Fixing Fitchburg's finances has been one of my top priorities as mayor and it has been a slow process to undo decades of very short-sighted decisions. We have been able to make some changes that should reflect positively in the next report, especially in achieving a higher rate of return of 13 percent than the 8 percent that is calculated in the report."

It is difficult to assign a rating to any pension system, Wong added, since most investments and practices are controlled by statute. She stressed that demographics -- such as having a large number of retirees -- are a key factor in performance.

Also, in order to help balance the budget, the city offered early-retirement incentives to its employees, which burdened the pension system beginning in fiscal 2006, Wong said.

Whether pension systems will be reformed isn't yet clear, but legislators said it may be difficult.

"I'm not sure if there's a will at this point" to enact the recommended reforms, Atanasov said.

State Sen. William Brownsberger, a Belmont Democrat, said there could be consolidation, but it would have to be coupled with more transparency.

"I tend to believe that, yes, we can consolidate those boards," said Brownsberger, co-chair on the Joint Committee on Public Service.

He said he has made a similar proposal in the past, but that various systems' rules would likely need to be simplified first.

Other, smaller changes to Massachusetts pensions have been made in recent years, such as the creation of commissions looking into retirement insurance and disability benefits. Recommendations from those commissions are expected this fall, Brownsberger said.

"We have made considerable progress over the last few years," he said.

Kevin Blanchette, a former chair of the Committee on Public Service is now chairman and CEO of the Worcester Regional Retirement System. Blanchette is skeptical that consolidating pension administration would receive enough support in the Legislature or that it would even be the best decision.

Every system has unique circumstances, he said, and some are nearly 100 percent funded.

"Why would you disrupt that if they're doing so well?" he said.

State Rep. John Scibak, a Democrat from South Hadley, is a member of a legislative commission studying potential disability-benefits reform. He said a better solution may be to have trigger points, such as three straight quarters of underperforming returns, for reforming individual pension systems.

Scibak said consolidating administrations "might not be as simple as one might expect."

A spokeswoman for the State Retirement Board did not respond to a call seeking comment.

Gibson, Middlesex County's pension chairman, said the 2014 valuation will improve the system's funding ratio, which the Pioneer Institute graded as an F. By then, Gibson said, "the calamity that was 2008 will be removed from the asset valuation formula."

The Middlesex system also "continues to suffer from the sins of the past," Gibson said, when future liabilities were not required.

Gibson also contested what he called erroneous data used by the Pioneer Institute in its report, such as the role of the Group Insurance Commission and how cost-of-living adjustments vary by system.

"I think the pension system is a very complex situation with a lot of factors, and to reduce this very complex system to a letter grade is very simplistic, and I don't think it does the public much good in understanding what the issues are," he said.

Welcome to your discussion forum: Sign in with a Disqus account or your social networking account for your comment to be posted immediately, provided it meets the guidelines. (READ HOW.)
Comments made here are the sole responsibility of the person posting them; these comments do not reflect the opinion of The Sentinel and Enterprise. So keep it civil.